UPDATE: This article has been updated to include a statement from Airbnb that was emailed to the Pulse.
A bill proposed by Rep. Joel Kitchens aims to ensure that room-tax collections in the state, and particularly in Door County, are remitted to the correct municipality.
When Door County enacted its 5.5 percent room tax and formed the Door County Tourism Zone in 2007, one of the zone’s primary selling points was that 30 percent of the tax would go back into the coffers of the municipality in which it was collected.
For 12 years, the tax has helped municipalities to pay for roads, sidewalks, visitor centers and other public amenities to the tune of more than $16 million. But now Airbnb and Vrbo – the online lodging marketplaces that have disrupted the hotel industry during the last decade – are adding the tourism zone to the list of disrupted entities.
In July, the Wisconsin Legislature passed a new requirement that lodging marketplaces must collect sales and room taxes on behalf of their users as of Jan. 1. Those marketplaces have indicated that they intend to remit those collections by zip code, not municipality.
In Door County, that presents a problem because zip codes overlap municipal boundaries. Much of Liberty Grove, for example, is in the 54234 zip code, which would be remitted to the Village of Sister Bay. That makes it impossible to know whether each municipality is getting its proper share of room taxes.
Online marketplaces now represent 75 percent of lodging permit holders, 25 percent of available rooms and nearly 30 percent of all room-tax collections. Many traditional hotels and resorts, such as the Landmark Resort, have rooms listed on the online marketplaces.
Kitchens has brought forward Assembly Bill 683, which would require entities that are subject to the room tax to include certain identifying information when filing their returns, such as the addresses and total taxes collected for each property. In the event that a marketplace company does not submit the required room-tax returns in a timely fashion or neglects to pay its taxes, a municipality would have the ability to impose a forfeiture of up to $500 per day, to a maximum of $45,000 per year. Municipalities would also be able to waive any forfeiture if an appeal takes place.
The bill is now in the hands of the Assembly’s Ways and Means Committee. Kitchens said he’s pushing for the committee to move it to the Assembly quickly for a hearing. The League of Wisconsin Municipalities has endorsed Kitchens’ legislation.
Kirsten Lee Villegas, president of the Wisconsin Hotel and Lodging Association, said the organization hasn’t taken an official position on the legislation.
“We do believe it contains positive steps toward ensuring that municipalities and the tourism industry as a whole receive the proper amount of room tax from lodging marketplace providers such as Airbnb and Vrbo,” she said in an email to the Pulse. “It would also hold lodging marketplace providers more accountable for collecting and remitting room tax with a more accurate method of tracking by a property’s physical address. We have worked with Rep. Kitchens on this statewide legislation and look forward to continuing to improve it as it moves forward.”
“We need to push it quickly because we don’t have much time this session,” Kitchens said. “It shouldn’t be that controversial, but hotels don’t like it because they don’t want to have to give up information to their tourism commissions.”
Tourism Zone Commission Chair Josh VanLieshout said the commission has identified a temporary work-around: The zone will collect the tax from lodging marketplaces in a separate reserve fund. Each permit holder will file a monthly return with the Tourism Zone Commission and designate what the lodging marketplace collected on its behalf. Then it will be dispersed according to the room-tax data and the history on file.
“We can’t reconcile the information because the marketplace providers refuse to provide that information specifically, and we can’t force them to,” VanLieshout said, so this approximate solution will have to suffice for now.
“It’s a big hassle,” VanLieshout said. “We really don’t know how much more time this is going to take us.”
The alternative would be to hold the 30 percent until the issue is resolved. That would be $2 million by the end of the year.
“You can imagine how towns might respond to that,” VanLieshout said.
Ultimately, permit holders are responsible for paying the tax appropriately, not the online marketplace. That has operators such as Jerry Connor concerned.
“It could be a pure and utter nightmare,” said Connor, who, with his wife, Martina, rents five properties in Baileys Harbor and Fish Creek. “As an owner, I’m petrified about what’s going to happen about funds getting misapplied to the wrong places.”
Connor said it’s unclear how they’ll reconcile last-minute cancellations or add-ons in regard to tax collections, which could put property owners at loggerheads with the tourism zone.
“If the OTA remits improperly, then I have to go and reconcile the tax,” Connor said. “It will fall on us. It’s getting to the stage where it’s becoming an arduous exercise.”
VanLieshout said Kitchens has been responsive to the problem and helpful in pushing the zone’s concerns forward. The legislation is crucial because there has been little response from Airbnb and Vrbo.
Airbnb responded to questions about the tax payments with the following statement:
“While we are reviewing this proposed legislation, Airbnb is proud to be a partner of the State where we have collected and remitted millions of dollars in taxes on behalf of our hosts and uniquely formed collection agreements with multiple municipalities.”
“These companies are so big, Door County’s issues don’t concern them,” VanLieshout said. “The whole geographic part of their business is based on zip codes.”
Tech companies such as Airbnb famously operate in the ethos of Facebook founder Mark Zuckerberg: “Move fast and break things.” For regulators and especially small municipalities, it can be hard to keep pace.
“It’s fascinating how quickly an industry can change, and how long it can take for regulators to catch up,” VanLieshout said. “For a hotel and motel, you have to go through a lot of stuff. Then all of a sudden you get this boom in single-family homes being for rent, and you can see it’s exponential. But I don’t think any agency has added inspectors to try to deal with the number of added homes for rent.”